What’s the future for fiscal federalism in New York?

December 28, 2016. The following op-ed by James Parrott appeared in City & State New York on December 28, 2016.

With President-elect Donald Trump and a newly empowered, Republican-dominated Congress soon taking control of the federal budget, the potential for substantial cuts in domestic spending poses gargantuan challenges for New York state and city budgets.

Roughly $57 billion in federal dollars flow into our city and state budgets annually. Medicaid accounts for approximately $35 billion, with another $14 billion in categorical funds flowing to the state, and roughly $8 billion to New York City. The federal treasury provides another $4 billion to $5 billion to support the New York City Housing Authority, the Metropolitan Transportation Authority’s capital budget and the city’s public hospital system, entities where steep funding cuts will set off alarms in Albany and City Hall.

Federal spending cuts are hardly new, but unprecedented cuts seem to be headed our way. A massive tax cut is one of the few significant Trump proposals that could be readily adopted in the first 100 days. Trump nominated a founding member of the anti-government, deficit-hating House Freedom Caucus, U.S. Rep. Mick Mulvaney, to be his budget director. Mulvaney has repeatedly demonstrated his willingness to shut down government or block increases to the debt ceiling unless spending is cut severely. Some Republicans will likely seek to offset as much of the tax cuts as they can get away with by slashing non-military spending.

After Medicaid, social welfare is the biggest area of federal funding for the city and the state – about $8.1 billion combined – supporting a wide range of programs from foster care and child care to public assistance. Education aid – $5.3 billion – is the second-largest source of federal funding, particularly for schools serving low-income students. Other areas receiving considerable federal support include public health, housing and community development, and criminal justice and anti-terrorism, each receiving roughly $2 billion.

We’ll see if, given the chance, die-hard anti-government Republicans will sharply cut funds for needy children. After all, 36 percent of all low-income children are white. But it is not hard to imagine, given the incoming budget director and Cabinet appointments, that funding for many social welfare, education and housing programs could shrink, in some cases severely.

Repealing the defining characteristics of Obamacare would, of course, risk taking health insurance away from 1.1 million New Yorkers. It could also entail a rollback of $4 billion in federal Medicaid dollars associated with expanded health insurance coverage in New York. Block-granting Medicaid, favored by U.S. Rep. Tom Price, Trump’s nominee for health and human services secretary, would destabilize a system that covers more than one in four New Yorkers.

Trump’s infrastructure plan, at least according to the detailed version released during the campaign, suggests that it is mainly a tax-reduction scheme for private investors. To the extent new federal funds are committed, it would likely also come at the expense of other domestic spending and add to the budget squeeze.

Other policies favored by members of the incoming Cabinet could weaken foundational elements of the safety net most Americans rely on, including Medicare and Social Security. If that were to happen, added pressure would be placed on the city and state budgets to repair some of the damage.

The progress President Barack Obama made in using federal tax policy to reduce income inequality very likely will be undone. As the latest Economic Report of the President demonstrated, Obama’s policies delivered the most significant reduction in market-generated inequality since the Great Society programs in the mid-1960s. The combined impact of his tax policy changes and Obamacare’s taxing of the rich to pay for expanded health coverage cut by 20 percent the ratio of average income of the top 1 percent to the bottom 20 percent.

Trump’s tax policy, including killing the century-old estate tax, likely will shower almost all of its cuts on the richest 1 percent. Using data from the Tax Policy Center, it appears that New York state’s top 1 percent could get a $20 billion windfall. Eliminating the deductibility of state and local income taxes, hinted at by U.S. Treasury Secretary nominee Steven Mnuchin, could decrease the tax windfall for the rich by $8 billion.

In the event there are draconian federal spending cuts that threaten the well-being of millions of New Yorkers, the state should consider a special tax to recapture some of the federal tax cut windfall that would flow to the state’s richest 1 percent. Whatever happens in Washington, Albany needs to extend and enhance the state’s millionaire’s tax, due to expire at the end of 2017. Without it, New York would be inflicting harmful budget cuts on itself.

As we peer into the Washington chasm that we’ll face in 2017, vigilance will be needed in every dimension of democratic governance, civil society, environmental stewardship and foreign affairs. While budgets may not be the most important priority given the epochal challenges we face, we know that government spending, or lack thereof, will profoundly affect the world we want to leave our children, and our children’s children.

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Syrian Immigrants: Doing Well, and a Strong Receiving Community for Refugees

December 13, 2016. A new report by the Fiscal Policy Institute and the Center for American Progress looks at how Syrian immigrants fare in the United States.

After a political campaign season in which Syrians coming to the United States were met with harsh words and proposals, this report takes a calm look at how immigrants from Syria are faring in the United States. The findings are reassuring: Syrian immigrants are highly educated, disproportionately likely to be business owners, learn English, and become home owners invested in their communities. Refugees come under different circumstances than the immigrants who came before them, but the fact that there are people in the United States who speak the same language and know the culture they come from can be a substantial help to the newcomers in finding their way into American society and the American labor market.

This report is a companion to the report FPI and CAP released in June about the integration of four refugee groups in the United States over the span of several decades: Hmong, Somalis, Burmese, and Bosnians.

 

Press release: Thriving Communities of Syrian Immigrants Integrate and Succeed in American Society, Are Strong Receiving Force for Syrian Refugees

Full report: Syrian Immigrants in the United States: A Receiving Community for Today’s Refugees

Minimum-wage bump is good for all; Even businesses in low-paying industries will benefit

December 11, 2016. This op-ed by Lorelei Salas and James Parrott appeared on crainsnewyork.com and in the December 12, 2016 print edition of Crain’s New York Business.

When the state’s minimum wage rises to $11 an hour from $9 on Dec. 31, workers at New York City businesses with more than 10 employees will see the largest percentage minimum-wage increase in 60 years. It will be a welcome and much-needed addition to paychecks for more than 800,000 low-wage workers struggling to make ends meet in our city.

According to the Economic Policy Institute, more than a third of these workers are raising at least one child, and the wage hike will help almost 75% of people living below 200% of the federal poverty line.

Benefits from the increase are not limited to low-wage workers; neighborhoods will be helped, too. Local businesses that rely on their neighbors to stay afloat should see sales rise—and more local spending means more local stability. Government also can gain, as an increase in the minimum wage means fewer residents on public assistance.

A recent New York state-focused University of California study concluded that businesses will be able to adapt to the higher wage floor without profits falling. They will save money on turnover and operations as workers stay on the job longer and improve their performances. Increased consumer spending will boost demand, which should be able to absorb modest price increases that would allow businesses to stay competitive. The overall result will be more-efficient businesses and no net reduction in jobs.

Several large employers around the country, including Target, T.J. Maxx, Marshalls, Ikea and the Gap, have already started raising wages to better recruit and retain workers, and to improve customer service. According to The Economist, even Wal-Mart now says that “higher wages come before price cuts,” as the company knows it needs to better motivate its workers to boost productivity and morale.

Higher wages can also benefit smaller or lower-margin businesses in sectors such as retail and food service, which can grow even while paying decent wages. Take, for example, Café Grumpy, a New York coffee shop chain that pays most of its employees at least $14 an hour. In January, it is set to open its eighth location, up from just one in 2005. Shaak Shatursun, who oversees the company’s retail operations, reported that offering decent wages has helped attract and keep better talent, and also represents the company’s commitment to helping its employees manage the city’s high cost of living—all while it has continued to expand.

This is the type of growth that our workers need to feed their families and that our city needs to thrive. As Shatursun can tell you, there’s no reason to be grumpy about higher wages.

Lorelei Salas is the commissioner of the New York City Department of Consumer Affairs, which houses the Office of Labor Policy and Standards. James Parrott is the chief economist of the Fiscal Policy Institute.